The Impact of Monetary Policy Communication in an Emerging Economy: The Case of Indonesia

By Calixte Ahokpossi, Agnes Isnawangsih, Md. Shah Naoaj, Ting Yan

June 26, 2020

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Calixte Ahokpossi, Agnes Isnawangsih, Md. Shah Naoaj, and Ting Yan. The Impact of Monetary Policy Communication in an Emerging Economy: The Case of Indonesia, (USA: International Monetary Fund, 2020) accessed September 20, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Since the adoption of the inflation targeting framework by Bank Indonesia (BI), monetary policy communication has played an increasingly important role in BI’s policy toolkit. This paper assesses BI’s monetary policy communication from three perspectives: i) its transparency and clarity, ii) its ability to align market expectation and BI’s policy decisions (predictability), and iii) its impact on financial markets. In particular, we assess the impact of BI’s monetary policy practices by focusing on its monetary policy press releases and monetary policy reports. The results show that Bank Indonesia has made significant progress in the transparency of its communication as well as in the institutional framework to support this. Nonetheless, the results also suggest ways in which the impact of communication can be further improved, including by strengthening the clarity of policy messages, its consistency with the policy framework and the depth of the money market.

Subject: Banking, Central bank policy rate, Communications in revenue administration, Financial markets, Financial services, Monetary policy, Monetary policy communication, Monetary policy frameworks, Money markets, Revenue administration

Keywords: BI issues monetary policy review, Central bank communication, Central bank policy rate, Central bank predictability, Communications in revenue administration, Exchange rate, Global, Market rate, Monetary policy, Monetary policy communication, Monetary policy decision, Monetary policy frameworks, Monetary policy objective, Monetary policy press releases, Monetary policy rate surprise, Monetary policy report, Monetary policy report dummy, Monetary policy surprise, Money market, Money markets, Rate surprise, Report dummy, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/109
Stock No:

WPIEA2020109
ISBN:

9781513545646
ISSN:

1018-5941

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